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When Cap and Trade Is Appropriate
In EPA's experience, cap and trade programs have proven highly successful in the context for which they are best suited. While achieving significant reductions on a regional scale, cap and trade programs have delivered substantial air quality improvements. However, they might not be the solution to every problem. For example, eliminating localized concentrations of pollution, while often a side benefit, is not their primary purpose.
The cap and trade approach is best used where:
- Emissions have longer residence times
- The environmental and/or public health concern has broad geographic impacts
- A significant number of sources are responsible for the problem
- The cost of controls varies from source to source
- Emissions can be consistently and accurately measured
- Strong regulatory institutions and financial markets exist
Under the right circumstances, cap and trade programs have proven extremely effective, providing certainty in allocations, rules, and penalties; substantial emission reductions; cost-effective, flexible compliance choices for regulated sources; complete accountability, unprecedented data quality, and public access to program data and decisions; and minimized administrative costs for industry and government. EPA's cap and trade programs have the force of federal and state standards behind them, including national health-based air quality standards. This ensures that local public health needs are met in conjunction with achievement of regional or national emission reductions.
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Additional Resources
- To Trade or Not to Trade? Criteria for Applying Cap and Trade (PDF) (5 pp., 156 K)
- Building Institutions to Address Air Pollution in Developing Countries: The Cap and Trade Approach. (PDF) (15pp., 116KB)
- Types of Trading (PDF) (2 pp., 202 K)
- US-Canada Emissions Cap and Trading Feasibility Study (PDF) (136 pp., 3.4 MB)